This paper attempts to analyze the impact of institutional environment on foreign real estate investment in Beijing and Shanghai. It examines the institutional environment and real estate market as perceived by foreign property investors/developers and property consultants. It also seeks to analyze the main factors that motivate real estate companies to invest in the Beijing and Shanghai markets and the strategies which they adopt to respond to the local environment. An attempt is also made to compare these perceptions with market realities. Primary data for the analysis was obtained through interviews of public institutions, foreign investors/developers, and consultants related to the real estate industry. The key players were asked to give their views on whether the institutional environment facilitate real estate investment, which factors facilitate and constrain the functioning and efficiency of the market, and critical factors to note when entering the Beijing and Shanghai markets. The main findings show that although the authorities have been trying to improve the environment for investment, the process for property development is still very complicating and time-consuming. Although BeijingÌs pull as a political and cultural centre and ShanghaiÌs attraction as the main commercial hub are very strong, there are many constraints affecting the real estate market. The findings suggest that the institutional environment and regulatory framework present a lot of difficulties and uncertainties to foreign investors and developers.